Tariffs And A Trade War Threaten U.S. Paper Recycling

There’s a trade war going on between China and the United States. Billions of dollars in new tariffs have been levied on aluminum and steel and also on recycled paper pulp. While not as well known, the levy on the little-known waste product could bankrupt an already taxed recycling industry.

China’s latest round of retaliatory tariffs against the U.S. includes something called “recovered fiber materials,” basically, recycled paper, the newspapers and cardboard that we put in the recycle bin. Recycling trucks collect paper, bundle it up at local centers, and sell it as bales, mostly to China, to be remanufactured into new products. It’s the cycle of recycling. And now there’s a potential tariff on those exports.

"I think this is a huge impact on the paper business in the United States. By taking a unilateral position against other countries, imposing a tariff against other countries, the U.S. is causing huge damage on the global trading system," said Dr. Baizhu Chen, a business professor at the University of Southern California.

The tariff announcement hits an already weakened recycling industry after China announced it would no longer import most plastics and other recycled goods from the United States earlier this year.

Heather van Blokland/KJZZ

Paper waste collected from recycling by the city of Phoenix.

"Certainly the impact has been considerable to us in the first quarter. So increased cost, decreased revenue, that doesn’t make for a winning equation in today’s marketplace," said Pete Keller, vice president of recycling and sustainability for Republic Services.

Keller is talking about China’s import ban on most U.S. recycled products, which started in January. Municipal recycling programs have spent much of 2018 in crisis mode. And some U.S. cities are not making it. Phoenix, though, has had an edge, according to Rick Peters, deputy solid waste director for the city of Phoenix.

"Part of it is the dry climate from Phoenix really makes the materials being dry makes them easier to separate," said Peters.

Phoenix has continued to export recycled paper to China during 2018 and that has been key to keeping the program profitable. But that all changes now that a tariff is on the table. Chen says a tariff is negatively impacting both American and Chinese businesses.

"So, this will have a big impact in China on the paper industry. They are short of feedstock. And all the businesses are thinking about where to get that feedstock and paper if they are short of paper pulp. And also have an impact on the recycling business in the United States," said Chen.

China is the top importer of U.S. recycled paper. China imported 2.73 million tons of U.S. cardboard during the first half of 2018 and 1.4 million tons of all other U.S.-sourced recovered fiber. And without China as the buyer of American recycled paper, the future of U.S. recycling is in doubt.

"China’s economy has been booming for so long, that they developed a huge appetite for our recycled materials so they could turn it into new products and then ship them overseas to us in their shipping containers. And then the next thing you know, it was like 40 percent of U.S. recyclable paper was going to China. And this continued for many, many years," said Peters.

“China’s economy has been booming for so long, that they developed a huge appetite for our recycled materials ...” — Rick Peters, Phoenix deputy solid waste director

Trade between the two countries is not even. Last year, China’s exports of goods and services to the United States totaled about $500 billion. That dwarfs China’s imports from the U.S., which totaled about $150 billion.

"In time, it’s going to take time, probably maybe several years, if China does not go back to buying, it’s going to take several years for demand and supply to get matched back up again to where the price of mixed paper and newspaper goes back up," said Peters.

Some businesses are not waiting for the governments to resolve the dispute. China’s largest paper manufacturer has asserted itself by buying up U.S. paper mills. That allows it to not only sell directly within the U.S. and also to ship paper remanufactured in the U.S. mills back to China without paying a tariff.

"So, for example, Nine Dragons, which is probably the largest paper company in China, and has (been) importing waste paper from the United States, they were thinking about investing in the United States to extract pulp from the papers and then sell the pulp into China, which is not in the ban, but now there’s a tariff," said Chen.

In May, Nine Dragons bought two pulp and paper mills in Maine and Wisconsin from Catalyst Paper Holdings, a Canadian company that now owns a closed paper mill in northern Arizona in Snowflake. In August, China’s third-largest recycled paper producer signed a deal to acquire a mill in Kentucky.

Both Catalyst and Nine Dragons were contacted for this story. Both declined comment.

"So the strategy is coming to invest in the United States, instead of exporting the waste paper directly, but the process, they buy the paper mill, to process the waste paper, and to turn it into the paper pulp. So, theoretically, these are much cleaner, these are not classified as recycled products," said Chen.

Arguably, as Chen says, if the new product is not classified as recycled paper, it would avoid a potential tariff.

"So now, instead of processing that in China, and Nine Dragons, for example, those companies, they process the waste paper in the United States," said Chen.

And, it will be manufactured in a paper mill now owned by a Chinese company, not a U.S one, leaving questions about the future of the U.S. recycling business.